When interest rates rise, bond prices fall. The extent of the fall in price is determined by many factors, one of which is time to maturity. The longer the time to maturity the more volatile the bond’s price will be. Ultra-short-term bonds have proven to be relatively stable in times of rising interest rates. Combining ultra-short-term bond strategies with floating rate notes, which provide the potential for increasing income as interest rates rise, can help reduce volatility of an investment portfolio overall. This has become a popular investment strategy that financial advisors use when interest rates are rising.
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